MORTGAGE!🫢 Flashcards
Reasons for the Preference of Land as against Other Properties as Security for a Loan?
- Land is ascertainable
- Land does not depreciate in value especially in times of inflation unlike shares
- Land is immovable
- It is easier for banks and other mortgagees to enforce their security in the case of landed properties than
other properties. - It’s less difficult to perpetuate fraud with landed properties.
What are the mortgage jurisdictions in Nigeria?
- Conveyancing Act of 1881/1882-NORTH, SOUTH, SS, EAST
- Property & Conveyancing Law 1959-WEST & EDO, DELTA
- Mortgage & Property Laws of Lagos state 2011.
What are the mortgage institutions in Nigeria?
- Federal Mortgage Bank of Nigeria-offers up to 66% of the purchase price as loan.
- Housing corporations
- Commercial banks
- Mortgage banks
- Property developers
- Insurance companies
Differences between Mortgage and Lien?
- Mortgage stems from the agreement/contract between the parties, LIEN is from an operation of law
- Mortgage deals with real property, LIEN is used for personal property
- Mortgage is a form of security to ensure that a loan is paid back, LIEN is a means of coercion
- The mortgagee has the right to sell the property in case of a default, LIEN does not give a right to sell
- The mortgagee has proprietary interest while in a LIEN, he has possessory interest(once the property is out of his reach, he loses his right)
Difference between Mortgage and Pledge?
- Mortgage is recognized by statutory laws while PLEDGE is a concept in customary laws
- Mortgage is in respect of real property while PLEDGE can be in respect of personal property
- In the event of a default, the mortgagee can sell the property, A PLEDGOR cannot sell the property without an order of court.
- Mortgage is a transfer of interest in a property as security with the proviso of cessar upon redemption, a PLEDGE is a conveyance of property with the assurance that the property will revert back to the borrower after payment.
- In Mortgage, there is a legal due date for redemption & upon a breach, the mortgagee can sell. PLEDGE is perpetually redeemable
Difference between Mortgage and Sale?
- In Mortgage, there is always reversionary interest. Also the proviso for cesser upon redemption that the property will be conveyed back to the mortgagor upon repayment of the debt.
In Sale, There is absolute transfer of the assignor’s unexpired residue of his interest in the property with no remainder. - In Mortgage, the mortgagor still has ownership over the property. In Sale, the assignor transfers all his interest.
Difference between mortgage and charge?
-Mortgage is a transfer of interest in a property while a CHARGE is a mere encumbrance on the property showing that the property has been used for security.
-There is no transfer of any interest whether possessory or proprietary in a CHARGE.
-Deposit of titled documents in a mortgage. No deposit of titled documents in charge
Why should investigation of a mortgage property be carried out?
- To discover any encumbrances on the property
- To ascertain the value of the property
- To know if there are prior mortgages on the property
What are the contents of search report?
- Date of search
- Place of search
- Description of property
- Name of borrower
- Nature of interest
- Encumbrances
- Comments/Observations
- Franking
FOR COMPANIES(BORROWER) - Date of incorporation
- Particulars of directors
- Borrowing power of the company
- Evidence of filing of annual returns
- Any registered charge on the company
What is contract subject to mortgage?
Where the purchaser does not have the entire purchase price, it is possible that parties can enter into a contract of sale of land subject to a mortgage that is in expectation of some loan and the property to be purchased will be used as security for the loan to be obtained.
The contract of sale conditional on the purchaser obtaining the loan. This helps to ensure that the deposit paid by the purchaser will be refunded in event that the mortgage fails.
What is Tripartite Mortgage agreement?
Here, the mortgagor’s property is not enough to be used as security for a loan. A third party’s property is then used to secure the loan. This third party acts as a guarantor and in the event of a default, he undertakes to pay the loan.
When is an equitable mortgage created?
- Deposit of Title Deed with an INTENTION to Create Legal Mortgage-BON V AKINTOYE
-Part performance-WALSH V LONDSLADE - Agreement to create a legal mortgage
- Inchoate legal mortgage-OGUNDIANI V ARABA
- By equitable charge over the mortgagor’s property
- Deposit of Title Deed with an AGREEMENT to Create Legal Mortgage
Advantages of Equitable mortgage?
- Where loan is for little amount of money it is preferable
- Where the period of repayment is short it is preferable
- Mortgagor needs the money urgently
- It is easier to create and quicker than legal mortgage
- It is not affected by the covenant in the head lease.
- Creation of Successive equitable mortgages are possible
- It encourages uniformity in the CA and the PCL States.
- Governors consent is not mandatory
Disadvantages of Equitable mortgage?
- The mortgagee is not entitled to the title documents.
- Difficulty in spelling out the agreement of the parties
- The power of sale of the mortgagee can only be exercised by the mortgagee upon a court order.
- Legal mortgages have priority over equitable mortgages.
- Easier to perpetuate fraud
Modes of creation of legal Mortgage?
- CA-ASS
- PCL-SSC
- MPL-DSCC
Modes of creating a Legal Mortgage in the CA states?
- By assignment
- By sub-demise
- By way of statutory charge
How is mortgage created an assignment in the CA state?
The mortgagor transfers all his unexpired residue in his leasehold interest to the mortgagee with a proviso for cesser upon redemption. Here, there is no reversionary interest for the mortgagor anymore.
i.e he has a leasehold interest of 40 years and he transfers the entire 40 years to the mortgagee.
Advantages of Assignment in CA state?
- Where there is a default, the mortgagee can sell the property without recourse to the mortgagor.
- All the reversionary interest vests in the mortgagee.
- The mortgagee is entitled to the original title documents.
- The mortgagee can transfer the property to another party.
Disadvantages of Assignment under CA state?
- There is no reversionary interest for the mortgagor
- Creates a privity of estate between the head lessor & the mortgagee
- Where there is a breach of any of the covenants, he will be liable.
What is the Sub Demise under the CA states?
Here, the mortgagor transfers all his unexpired residue of his leasehold interest in the property less one day. The mortgagor has reversionary interest in the property.
i.e He has a leasehold interest of 35 years and transfers 34 years to the mortgagee.
Advantages of Sub demise under CA state?
- The mortgagor has reversionary interest in the property
- There is no privity of contract between the head lessor and the mortgagee
- There is uniformity because it is applicable in all jurisdictions
- Can be used to create successive legal mortgage
Disadvantages of sub demise in CA?
- The mortgagee cannot sell the property in the event of a default without consent or inserting remedial devices.
- The mortgagee is not entitled to the original title docs
- Mortgagee is not entitled to benefits of the covenants in the head lease
What are the remedial clauses to be inserted in mortgage created by sub demise in the CA state?
- POWER OF ATTORNEY-The mortgagor appoints the mortgagee as a donee over the property & in the event of a default, he can sell the property to obtain the loan advance. It’s an irrevocable POA because it’s given for valuable consideration
** Ihekwoaba v. ACB Ltd** - DECLARATION OF TRUST-The mortgagor holds the property including the reversionary interest as a trustee on behalf of the mortgagee and where he defaults in repaying the loan, the mortgagor can be removed & the mortgagee can subsequently sell.
What is a mortgage created by way of STATUTORY CHARGE?
THE mortgagee has proprietary interest over the property, but it is hardly ever used. It is discharged by way of a statutory receipt. Its disadvantage is that since the receipt is not registerable as an instrument, the mortgage may continue to reflect in the land registry
S 26(1) CA
Modes of creation of Mortgage in the PCL states?
- Sub demise-No need for remedial device because S 112(1) PCL has cured the defects.
- Statutory charge
- Charge by deed expressed to be by way of legal mortgage
What is charge by deed expressed to be by way of legal mortgage?
No interest is transferred to the mortgagee however he enjoys all the rights of a legal mortgage.
It is discharged by a statutory receipt.
NOTE, it can be used to create a mortgage over mixed properties
DISADVANTAGES
1. no transfer of interest
2. cannot sell unless you insert a remedial device
What is the mode of creation of mortgage in MPL state?
Depends on the nature of interest-Whether it is a leasehold interest or Right of occupany
Modes of creation of Legal mortgage in the MPL states?
SEC 15 MPL-Right of occupany-Where you see C of O, know that it is applicable.
1. Demise for a term of years absolute
2. charge by deed expressed to be by way of legal mortgage
3. charge by deed expressed to be by way of statutory mortgage.
SEC 16 MPL-Leasehold interest
1. Sub demise for a term of years absolute less one day.
2. charge by deed expressed to be by way of legal mortgage
3. charge by deed expressed to be by way of statutory mortgage.
Advantages of legal mortgage over equitable mortgage?
- Legal mortgage ranks in priority over equitable mortgage.
- subsequent purchaser of a legal mortgagee will take priority over the interest of an equitable mortgagee where the purchaser is a bona fide purchaser for value without notice.
- protected and not easily susceptible to fraud.
What is Upstamping?
- Same Parties
- Same property
- Existing mortgage
- Different loan transactions
- New duties paid
Basically occurs where a mortgagor uses one property to collect multiple loans from the mortgagee. Governor’s consent is usually not required here.
What is successive legal mortgage?
It occurs where the mortgagor uses the same property as security for multiple mortgage transactions
1. Same mortgagor
2. Different mortgagees
3. Different mortgage transactions
Each mortgage will be ranked in order to priority based on when it was created
Cannot create successive legal mortgage by assignment because the mortgagor lacks reversionary interest
What is consolidation?
As a general rule, consolidation of mortgages is prohibited under SEC 115 PCL
Consolidation occurs where the same mortgagor, and the same mortgagee but the mortgagor uses different properties to create different mortgages.
Conditions that must be present before consolidation can be done
The same mortgagee
b. The same mortgagor & mortgagee
c. Different mortgages, using different properties
d. An express covenant to consolidate
e. The legal due date must have passed for all the mortgages
What are covenants to be included in a mortgage agreement?
- Covenant to pay the principal sum and interest within the legal due date
- Covenant to insure
- Covenant to create leases and sub lease
- Covenant to pay interest
- Covenant to consolidate
- Covenant to re-convey upon redemption
What are the Covenants in a Mortgage agreement?
- Covenant to insure
- Covenant to repay the principal sum and interest within the legal due date
- Covenant to create lease and sub lease
- Covenant to pay interest
- Covenant to consolidate
- Covenant to repair
What happens where no legal due date is inserted in a mortgage agreement?
It is deemed to be payable on demand
Why would you advice the mortgagee not to take possession of the mortgage property?
-He will have a duty to render accounts of profit made, maintain the property and he has a duty to insure the mortgage property
-He may also be liable for deterioration of the property
What is the importance of inserting a Legal Due Date?
a. The mortgagee cannot bring an action to recover the sum until the legal due date has passed.
b. The mortgagee cannot successfully exercise his right of sale or foreclosure if the legal due date has not passed.
The mortgagee cannot attempt to extinguish the equity of redemption of the mortgagor.
c. It helps the mortgagee know when his right to sale has arisen
What happens where there is no interest rate inserted in a mortgage agreement?
The court will hold that it is inequitable to redeem without the payment of interest.
Recourse can also be made to customs and CBN rates
Sample of a covenant for interest clause?
The interest rate payable is 18% but upon prompt repayment before or on 16th of April 2024, it becomes 6%
who usually insure a mortgage property?
The mortgagee has a statutory duty to insure a mortgage property against fire where there is no contrary agreement.
S 123 PCL
What happens when the governor revokes the right of occupancy for a mortgagor on the grounds of public interest?
Compensation is to be paid to the holder of the right of occupancy which is the mortgagor under the LUA, section 28.
What are the contents of a covenant to insure?
1.Who to insure?
2. Risk to be insured
3. Amount to be insured
4. Application of insurance money
5. The insurance company
6. Commencement date of insurance
Draft a mortgage agreement!
- INTRODUCTION-Commencement, Date, Parties & Recitals
- OPERATIVE-Testanum(covenant to repay and charging clause) & Habednum(mode in which it was created)
- Miscellaneous-all the other covenants
- Concluding-Execution & Attestation
content of a recital in a Deed of legal mortgage?
Start with “whereas”
The mortgagor is the holder of the certificate of occupancy
1. Number
2. Dated
3. Address
4. Registered no
5.Lands registry office of Ikoyi, Lagos
Sample governor’s consent?
CONSENT TO THIS LEGAL MORTGAGE
DATED THE …..DAY OF 2022
EXECUTIVE GOVERNOR OF ONDO STATE
What rights of the mortgagor?
- Equity of redemption
- Legal right to redeem
- Equitable right to redeem
- He can demand for proceeds where applicable
- Right to repossession of the property/doc/deeds
What is equity of redemption?
Stems from the principle of “once a mortgage always a mortgage”
Equity of redemption is created as soon as a mortgage agreement is drawn.-YARO V AREWA CONSTRUCTION
ANY covenant that clogs the mortgagor’s equity of redemption will be invalid.
This is where the mortgagor gets his main right from-there must be a proviso for cesser upon redemption.
This right can only be negated by foreclosure absolute, lapse of time or redemption.
What is Legal Due Date to redeem?
The legal right to redeem arises the moment it is created and it continues to subsist until the end of the legal due date. Where there is a legal due date stated in the deed, the legal right to redeem can be exercised before or on the expiration of the legal due date. After the legal due date the legal right to redeem terminates.
What is equitable right to redeem?
It arises after the expiration of the mortgagor’s legal right to redeem. Usually once the mortgagor’s legal right to redeem passes, he is taken to have lost the right to redeem.
He may lose his equitable right to redeem by foreclosure absolute, order of court and by sale
What is legal fiction?
Inserting an earlier date for repayment other than the legal due date stated in the mortgage agreement. The aim is to keep the mortgagor on his toes and ensure quick repayment.
Rights of a Mortgagee?
- Right to recover principal sum and interest-Legal & equitable
- Right to take possession-Legal
- Foreclosure-Legal
- Sale-Legal & equitable
- Right to appoint a Receiver-Legal & equitable
- Specific performance(equitable mortgage)
What are the conditions before a Mortgagee can appoint a Receiver or sell a property?
- The power of sale has arisen-PAYNE V CARDIFF RC
- The power of sale has become absolute-IHEKWOBA V A.O.B
When Power of sale be said to have arisen?
- The mortgage is created by deed
- The mortgagor has defaulted in repaying the loan.
- There is no contrary agreement in the mortgage agreement by the parties
When can power of sale be exercisable?
- Where the mortgagor has defaulted in repaying the sum due for two consecutive month to pay interest.
- Notice of demand to pay the principal sum has been served & he has failed to pay for 3 months.
- Where there is a fundamental breach of the mortgage covenant except from
covenant to repay the sum.
Conditions for power of sale to be exercisable in Lagos?
- Notice of demand for payment of principal sum or interest has been served and he has defaulted in payment for at least 2 months
- Breach of one of the covenants in the mortgage agreement
SEC 37 MPL
Is a sale valid in Lagos where the power of sale has not arisen or become exercisable?
YES! Sec 38 MPL
What are the other conditions that must be observed by the mortgagee to ensure that the sale is not set aside?
GACU
1. Good faith
2. Agent buying-Don’t sell the property to yourself
3. Collusion-Don’t collide with the buyer or proposed buyer
4. Undervalue
What is the order of application for the proceeds of the sale in a mortgage transaction?
ECOB
1. Encumbrances
2. Cost of Sale
3. Outstanding mortgages
4. Balance to the mortgagor
When can a sale be set aside?
- Lack of consent
- The mortgagor has repaid the principal sum and interest
- Gross undervalue
- Agreement on mode of sale
- No good title
- POA has not arisen or become exercisable
- Fraud
What happens where a power of sale
has arisen but it is not exercisable and the mortgagee sells the property?
- An order of court declaring the sale i valid
- If the mortgagee has not sold but he is preparing to sell? get an injunction against him
What happens when a mortgage sells a mortgage property where the POS has arisen but it is not yet exercisable to a bonafide purchaser for value without notice?
Such sale will be valid so far it was done in GOOD FAITH and the bonafide purchaser did not collide with the
mortgagee
What is foreclosure?
It is available in both legal & equitable mortgage.
When foreclosure is granted, it extinguishes the mortgagor’s equity of redemption & the property will be vested completely in the mortgagee.
The mortgagor & any other with an interest in the property loses the ability to redeem the property after the court orders foreclosure.
What are the stages of foreclosure?
- Foreclosure Order Nisi-valid for 6 months
- Foreclosure absolute-after the expiration of order nisi
When is foreclosure granted?
The legal due date has passed or the mortgagor has breached one of the fundamental terms of the mortgage terms which made the power of sale exercisable.
Can a mortgagee sue for balance after foreclosure has been granted?
NO!
Once foreclosure on the mortgagor’s property has been done and the property is not sufficient to satisfy the money loaned, there is no remedy for the mortgagee.
Where a foreclosure order has been made and the property of the mortgagor is not enough to satisfy the debt, can the mortgagee still bring any action?
NO!
where the proceeds of sale is not sufficient to satisfy the loan, he cannot bring an action.
Unlike SALE, where the mortgagee can still bring an action to recover the remain sum owed
What is the effect of foreclosure nisi in mortgage?
The mortgagee cannot sell the property & the mortgagor can repay the sum owed within 6 months
When can Foreclosure Absolute be reopened?
JESA
1. Just and Equitable grounds
2. Exceeding value of the property
3. Special circumstances
4. Action to repay by the mortgagee
Conditions an applicant must fulfill/be met for reopening a foreclosure absolute?
TUMA
1. Timeously
2. Unconscionable conduct
3. Money at hand
4. Affidavit of good cause
How is Mortgage discharged?
- Assignment/Sub Demise-Deed of Discharge, Surrender or Release
- Charge/Statutory Charge-Statutory Receipt
- Equitable Mortgage-Payment of principal sum and interest
- Legal mortgage in Lagos-Receipt of Discharge of mortgage
Why is Governor’s consent not needed in Upstamping?
The Governor’s consent is for the alienation of the legal title in the property-
Owoniboys Technical Services Ltd. v. Union Bank of Nigeria Ltd
Who is obliged to get the governor’s consent?
It is the owner of a statutory Certificate of Occupancy that is obliged to obtain the consent of the Governor of the State where the land in respect of which he wishes to sell, transfer or mortgage
S 22 LUA
Reason for inserting covenant to consolidate?
The mortgagor may want to redeem the property which is the most valuable to him, so in order to protect to the mortgagee.
What happens where you use numerous properties, one in Lagos, one in port harcourt, one in anambra and you want to consolidate?
The parties can consolidate individually due to the fact that in Lagos and under the MPL, registration for consolidated mortgages is needed.
section 28 (1) of the MPL.
